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The AIG bonuses are not bonuses as we know them: Extra pay tied to superlative performance. They've got those, of course. But these bonuses are different. They're "retention pay." Rather than rewarding good market performance, they "guaranteed a minimum level of pay for both 2008 and 2009" in case the market tumbled. As compensation packages go, having both performance and retention bonuses is a pretty good deal: Heads you're rich, tails you're richerIn his column today, David Leonhardt examines whether retention bonuses work. The answer? It's not clear. At the CEO level, they definitely don't. Below that, it's hard to say. What we do know is that, at AIG, they aren't working. Fifty-two employees have taken their retention bonuses and left. And who can blame them? The bonuses were meant to tide them over amidst a tough market. They didn't get a tough market. They got a government takeover. Then they became the poster children for everything that is sick and rotten and twisted on Wall Street. Would you want to tell a pretty girl at the end of the bar that you work at AIG? Would you want to watch her eyes widen with horror and fear?So you bolt. But what comes next might, for the rest of us, be rather more objectionable. Andrew Ross Sorkin writes:
Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it. A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.It would be the equivalent of insider trading, though not, actually, illegal. In theory, the check on this sort of behavior is that it verges on comically evil. But how much are you willing to trust that? And if we're not willing to trust that, what can be done to stop AIG's bookkeepers from betting on the very steps that they know will be necessary to defuse the bomb the built?
